Sir John Speaks
DJ Sir John Templeton: US Debt Burden May Bring Financial Crises (DJN)
By John Shipman
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Five years ago, esteemed investor Sir John Templeton made a prediction.
He said that within five years, U.S. equities stood a better than 50-50 chance of facing a bear market that could leave stock
prices down 40% from their peak.
He was only partly correct.
Within two years, the Dow Jones Industrial Average tumbled 35% while the Nasdaq Composite Index shed more than 78% of its
value, from its March 2000 high to its most recent low in October.
While he won't predict what's in store for U.S. equities in the next five years, Sir John did offer some cautionary words
during a recent interview with Dow Jones Newswires regarding the amount of debt owed by Americans.
"There has never been a nation whose debt is so high as America's is now," he said.
Combining government, corporate and consumer debt, Americans owe more than $30 trillion, Sir John pointed out.
"No nation came close to that ever before, and it's likely to cause crises," he offered.
Mortgage debt is one area where he foresees trouble.
Many in America have large mortgage burdens, Sir John said, "and their mortgages are so big that if there should be a
downturn in house values, there would be millions of bankruptcies."
If home prices declined by 30%, which he believes is not a stretch, mortgage agencies such as Fannie Mae (FNM) and Freddie
Mac (FRE) might be hard-pressed to meet their obligations, Sir John asserted.
The U.S. economy is facing "hundreds" of other problems, "but that one I do think is going to become dramatic fairly soon,"
he said.
"Within five years, I think there will be a lot of publicity about mortgage companies" and their debt, Sir John predicted.
In 1992, at age 80, Sir John sold his mutual fund company to Franklin Resources Inc. (BEN).
"My talents seemed to lie in selecting stocks for mutual funds," he said, and while quite successful, "It left me feeling
that my clients were really not much better off."
They may have been more wealthy but, they "were not any more productive or happier," Sir John explained.
Spiritual Wealth
He has since devoted all his energy to building wealth of a spiritual kind, and encouraging others to seek a greater
understanding of spiritual realities through science.
"People have worked on spiritual wealth since civilization started, but in the last three centuries they have not used any
scientific methods to build spiritual wealth," Sir John said.
"In so many areas, humans know a hundred times as much as we knew just one century ago, but in the areas of spiritual
realities, we know very little more than we did," he added.
In 1972, Sir John established the Templeton Prize which is annually awarded to an individual for "progress toward research or
discoveries about spiritual realities."
Holmes Rolston III, a philosopher, clergyman and scientist was recently named the 2003 prize winner, which carries with it an
award of about $1.1 million.
As a result of his quest for spiritual wealth, Sir John says he's busier, more enthusiastic and more joyful than ever.
However, "I don't know a lot about investments any more," he said.
Sir John did, however, voice some opinions on current issues affecting investors and the mutual fund industry.
He said he is largely in favor of efforts to increase transparency in the fund industry, although not to the extent that
information, such as portfolio holdings, would interfere with a fund manager's ability to get the best execution when trading a
position.
"Almost all transparency is desirable. It's hard to imagine having too much transparency," Sir John said.
The concept of increased transparency is also on the rise throughout the world, Sir John noted, particularly in emerging
markets, and much to the benefit of investors.
Nations will follow the example that they are "benefitted, and not harmed by transparency," he said.
"As it happens, there will be more investors, including Americans, who will be willing to invest" overseas, he added.
On President Bush's proposal to eliminate the tax on dividends, Sir John is all in favor.
Taxing corporate earnings twice "seems such an obvious unfairness, now we ought to change it," he said.
More importantly, "Millions of families who don't own shares yet would own shares if they could get dividends tax-free," Sir
John said.
While not a strong advocate for government regulation, Sir John said, "I do favor any change in policies or regulations that
induces more people to become shareholders."
-John Shipman, Dow Jones Newswires; 201-938-5171; john.shipman@dowjones.com‚
(END) Dow Jones Newswires
03-27-03 1320ET |
